RPT-Colombia may cut rates as economy remains weak, inflation low

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* Low inflation provides room for another cut

* Economy grew 4 pct in 2012, 4.8 pct expected in 2013

* Govt may announce measures to boost GDP

By Helen Murphy and Nelson Bocanegra

BOGOTA, March 22 (Reuters) - Colombia's central bank may cut its benchmark lending rate for a fifth straight month on Friday, taking advantage of benign inflation to encourage consumer and business spending and bolster the sluggish economy.

The seven-member board, led by Jose Dario Uribe, is likely to reduce the key interest rate a quarter point to 3.50 percent and provide additional stimulus after the economy was hit by lower overseas demand and anemic factory output.

In a Reuters survey of 21 economists, 17 expect a cut, while four see the bank holding the rate steady at 3.75 percent.

With gross domestic product growth well off its expansion levels in 2011, the central bank has tried to spark more investment from Colombian consumers and corporations by cutting 150 basis points from the lending rate since mid 2012.

Data on Thursday showed the economy grew a better-than-expected 4 percent in 2012, among the fastest rates in the world, but much slower than the 6.6 percent pace the previous year.

"The bank should take its final shot and cut rates again," said Cristian Lancheros, an analyst at Acciones y Valores. "Especially taking into account that growth is still below potential and while inflation in January and February suggests a deterioration in aggregate demand."

Inflation below the bottom end of the central bank's target range of between 2 percent and 4 percent has given ample space for the rate cuts. At 3.75 percent, Colombia's interest rate is the lowest in Latin America.

Annual inflation through February was 1.83 percent.

Investment in Colombia has soared over the last decade, mostly in the oil and mining industries, reaching record levels and boosting the peso as security improved following a U.S.-backed offensive against rebel groups.

Expansion started to flag last year due to the after-effects from the global financial crisis. Industrial production became a concern for the government just as the jobless rate began to improve.

The government expects 2013 growth to reach 4.8 percent.

"We are satisfied with the growth level, but that doesn't make us complacent, there are sectors that need help, industry needs help, measures," Finance Minister Mauricio Cardenas told reporters late on Thursday. "The economy requires stimulus so another rate cut would be convenient."

Manufacturing fell in seven out of 12 months last year, and retail sales remained weak. Exports have fallen in six of the last 12 months. January data will be published later on Friday.

Of the nine sectors that make up GDP data, industry was the worst hit, falling 0.7 percent compared with the previous year when it rose 5 percent. Construction grew 3.6 percent, well off the 10 percent increase in 2011, while mining increased 5.9 percent compared with 14.4 percent in the previous year.

"We expect the rate to be cut another 25 basis points because leading indicators at the beginning of this year show lower dynamism," said Catalina Tobon, chief strategist at Bogota-based financial entity Skandia. "The board still has sufficient wriggle room given that inflation is so low."

TO 'SHOCK' ECONOMY

Analysts will look carefully at the bank's post-announcement statement for signs that the rate-cut cycle will end after this month, said Siobhan Morden from Jefferies LLC.

"There is potential for more rate cuts considering still low inflation, however the balance of risks are likely shifting towards a wait and see attitude to monitor the impact of the cumulative stimulus, especially in light of the stronger than expected GDP data," she said.

Investment in civil works rose a better-than-expected 1.9 percent in 2012 following changes to the methodology the statistics agency uses to calculate the data. The new calculation allowed revisions to the three quarters of GDP prior to the final quarter, bulking the overall 2012 growth number from about 3.5 percent, according to Barclays.

Central bank Chief Jose Dario Uribe has blamed increased environmental requirements and delays in permits for the recent weak performance in civil works, which include highways and bridges. He also has raised concern about the impact that labor disputes in the coal mining sector may have on growth.

He also expressed concern consumer confidence is beginning to wane.

Workers at the largest coal exporter, Cerrejon, ended a 32-day strike earlier this month and coffee growers and truckers also blocked roads and halted work. The disputes will likely damage the economy in the first quarter.

Exporters and some local manufacturers have been strapped by the strong currency - 1,822 against the dollar early on Friday - and complain that current level of the peso makes their business less competitive and costs them more in domestic terms.

President Juan Manuel Santos and Finance Minister Cardenas repeated calls this week for the bank to take stronger measures to ease the peso gains.

Like other emerging markets, Colombia is facing an onslaught of U.S. dollars due to expansionary monetary policy in developed economies, and relatively higher yields and strong economic expansion there than in Europe and the United States.

Colombian policymakers have already taken verbal and actual measures to weaken the peso with the central bank buying dollars daily and the government helping manufacturers and boosting its own demand for dollars.

Santos is expected in coming days to announce a packet of measures aimed at "shocking" the economy.

The measures, which may include tax breaks and lower energy costs as well as fiscal, trade and anti-counterfeiting measures, could boost growth by one percentage point a year, Cardenas told Reuters last week. (Reporting by Helen Murphy; editing by Andrew Hay and Nick Zieminski)